What is a Reverse Mortgage?
A reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM), is a type of loan that allows homeowners 62 years or older
to convert part of the equity in their home into tax free* money. Originally conceived as a means to help
senior homeowners with limited income use that equity to pay off debts (including traditional mortgages), cover basic monthly living
expenses or pay for health care, new rules and regulations have helped reverse mortgages become a valuable tool in an overall financial plan.
Why Choose a Reverse Mortgage over a Traditional Home Equity Loan?
To qualify for a traditional home equity loan or
line of credit, you must have good credit and a sufficient income stream to maintain the loan payments. With less stringent income
and credit requirements, a reverse mortgage makes it easier for those individuals on a fixed income or without a steady income to
qualify for a loan. And, they are backed by the U.S. Department of Housing and Urban Development (HUD) and are insured by the Federal Housing
Eligibility Requirements for a Reverse Mortgage
- The home must be a primary residence.
- One borrower in the primary residence must be at least 62 years of age.
- Residence must be a single family home, multi-family home up to four units, or a HUD approved condominium.
Reasons to Consider a Reverse Mortgage
Stay in your Home
Instead of making monthly payments on your traditional mortgage, a reverse mortgage can help you tap into the existing equity that you’ve built up over the years to receive additional payments from that equity.
The funds from a reverse mortgage can help bridge the financial gap for medications, treatments, long-term care, or other
medical expenses not covered by Medicare/Medicaid or other health insurance providers.
Help fund a child or grandchild’s education expenses and reduce the burden of costly student loans for them.
Help Family or Friends
The funds from a reverse mortgage can help family members or friends in need of financial assistance.
Use the existing equity in your home for household projects or renovations.
New Home Purchase
Help a family member purchase a home, or use the proceeds to purchase a new primary residence for yourself.
Consolidate and pay off credit cards, car loans, and other debt.
A reverse mortgage can be an additional strategy in a diversified investment portfolio.
How Much Money Can I Get?
The amount of money available from a reverse mortgage is dependent on two key factors:
- At least one homeowner needs to be 62 years of age.
- The more equity you have in your home, the more money will be available to you.
How Can the Proceeds from a Reverse Mortgage be Distributed?
You have the option to receive payments in any of the following methods or a combination of them:
- Lump sum
- Credit line
Who Owns the Home and How is the Reverse Mortgage Paid Back?
The borrower retains ownership of the home at all times.
If they decide to sell their home, move to another primary residence, or if they pass away, the borrower(s) or their heirs have the option
1. Keep the House
By repaying the balance of the reverse mortgage.
2. Sell the House
And pay off the balance of the reverse mortgage from the proceeds of the sale.
3. Walk Away from the Home
And let the lender take ownership. Since a reverse mortgage is a non-recourse loan, there is no additional personal liability.
How Do I Get Started?
This website provides a broad overview of the reverse mortgage program and its benefits. For additional information,
speak with one of our experts for a free consultation to determine if a reverse mortgage is the best
product for your financial needs.
In addition, the U.S. Department of Housing and Urban Development (HUD), who regulates
this program, requires that all potential applicants speak with a HUD approved counselor
before proceeding with a reverse mortgage application.
Disclosure: These materials are not from HUD or FHA and were not approved by
HUD or a government agency.
* Consult a tax professional